literature on vietnam metal market

ACKNOWLEDGEMENTS First of all, I would like to express my gratitude to all those who gave me the possibility to complete this graduation assignment. I am deeply indebted to supervisor Mr. Trần Anh Thơ from the Faculty of English at Hanoi University of Business and Technology (HUBT) for his supervision to bring the graduation assignment of this kind to accomplishment. Furthermore, I want to give my sincere thanks to Finance department and Import-Export Department of Oristar (Oristar Im-Export Co., Ltd) for giving me permission to commence this assignment in the first instance, to do the necessary research work and to use departmental data, especially Mr. Pham Quoc Hung, Ms. Lan Huong, Ms. Hai Quy and Ms. Thanh Nga for their valuable resource offer to complete the assignment of this kind. Last but not least, I would like to express my warm thanks to my family and my friends who are always beside and support me during my writing this graduation assignment. i LIST OF FIGURES Figure 1 Total revenue between 2003 and 2006 (billion VND) 10 Figure 2 Total revenue of three quarters 2007 (billion VND) 11 Figure 3 Total revenue of first three quarters 2007 (billion VND) 14 Figure 4 Total quantity on turnover of Al Billet from 2004 to 2006 (metric ton) 18 Figure 5 Quantity of Billet Oristar sold to customers through years (metric ton) 19 ii ABBREVIATION Al Billet Aluminium Billet Comex Commodity exchange EU Europe Union GDP Gross Domestic Product ISO International Standards Organization JIS Japanese International Standards LC Letter of Credit LME London Metal Exchange MT Metric Ton SC Sale Contract iii CONTENTS iv INTRODUCTION As being one of the expert agents in Vietnam metal market, Oristar has achieved remarkable success even though they are just five years in this industry. This is not too strange for us to imagine how it really is but it still makes us curious about what they are doing and how every thing is running in every day working in the company. Why a newcomer in a very sensitive market like metal market can be survived and gain a lot of success which might take decades for many existing companies to do that. In this report, we will have the answers for all the above questions. Because metal market is a special market which is operated in different regulations to consuming market’s and influenced by many sensitive factors, so before going to analyzing Oristar’s business performance, we had better give an overview on metal market in Vietnam. That might help viewers to follow easily. Analysis on Oristar’s business activities should remark its achievements and also remains that will be discussed in the last chapter of recommendations. Hence, there will be three major chapters in this assignment. Chapter I: Literature on Vietnam metal market Chapter II: Oristar’s business activities and its economic performance on Vietnam Aluminium Billet Chapter III: Solutions to rev up Oristar’s business activities in Vietnam Aluminium market The report may be limited in scope of study in a way that just focuses on one major branch of Oristar’s business activities that is Aluminium Billet. 1 Therefore, there are still many problems needed to be discussed in further researches. CHAPTER I LITERATURE ON VIETNAM METAL MARKET 1.1. Background of import and export activity 1.1.1. Definition of international trade and import-export activity International trade is the exchange of goods and services across international boundaries or territories. Nowadays, International trade is playing a more and more important role in world economy and taking a higher contribution to GDP of each country. International trade has been a major driver of global growth and prosperity over the last fifty years. Barriers to trade have fallen significantly over the last half-century thank to a lot of agreements on free trade around the world. Hence, International transactions have been increasing dramatically in recent day. Importation is the activity or process of bringing things into a country from abroad in order to sell them. Import is any good or commodity, brought into one country from another country in a legitimate fashion, typically for use in trade. Import goods or services are provided to domestic consumers by foreign producers. Exportation is the activity or process of selling goods to other countries. Export is any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. Import-Export activity is a key part of international trade in which goods are transferred between countries. This is a complex process, which required a lot of other supporting activities such as settling balance, shipping cargo, and buying insurance policy. 2 Payment is one of the most vital elements of any sale contract because it is related to the primary aim of deals. That is benefit. Therefore, whether doing business domestically or internationally, buyers and sellers have certain basic objectives when they settle upon a mutually acceptable method of payment: • Buyers want to receive the goods they order. • Sellers want to be paid the agreed upon price in a timely manner. Transportation is also an essential part of international trade. It is the movement of goods from one place to another. However, it is just happened to physical sale contracts, which state that goods must be transferred from one country to another. It is not a long time ago when international transactions could not reach between the dealers at far distances. However, a long with the development of world trade, transportation services has had breakthrough jumps. Today, nearly all human’s innovation in transport has been applied to cargo transportation among countries and it seems that there is no where in the world that could not be reached by transporter. That is really a big support to boosting international trade. In summary, basic definitions of international trade especially im-export activity and other supporting services have been covered briefly. Hopefully the background will be helpful for later analysis. 1.1.2. Definition and importance of Agent Agent is an individual or firm authorized to act on behalf of another (called the principle), such as by executing a transaction or selling and servicing an insurance policy. The agent does not assume any financial risk in the transaction, as a dealer would. 3 According to the above definition, there is an important point that an agent acts on behalf of another and take no risk for any financial problem with the activity. Because an agent does not take title to the good, he won’t have to bear financial risks but can not benefit the differences in price of goods. However, an agent is paid a commission for the service he offered to the principle. The commission is usually a percentage of the value of goods or services. These are some key points of an agent on theory. Recently, the international trade has been expanding aggressively thank to free trade policies of countries, which also facilitates oversea agent activity. Basically, the appearance of agent is to help trade flow smoothly and easily. Particularly, an agent provides a service of representing another on doing certain actions following his principle’s instructions. Agent’s activities not only cut down cost and time in case of two-side deals but also help the seller update the market information. 1.2. Overview of metal market 1.2.1. World metal market Metal market has its own rules which are very different from others. One of the reasons is that metals are special goods, which follows only market supply and demand. There are many factors affecting to metal price. The fluctuation in price of one metal will have widespread influence on the materials, semi-products, and finished products used the metal as well. The movement in metal price is presented on metal exchanges such as LME (London Metal Exchanges), Comex (Commodity Exchange). 2 These markets are the guide line for all suppliers to make their own price because price of metals, which are inputs for their production, are reflected on such metal exchange markets. Hence, if there is a small change in price of one metal in 4 LME, for example, it will lead to a succession of changes in price of all materials and products made from the metal. Because metal market is very highly organized and operated on market supply and demand through 24-hour transactions, it has been attracting more and more buyers and sellers to make deals in the market. The more deals the metal exchanges carry out, the more exact it reflects on the price of metals regarding to market supply and demand. Studying the relation of the two giants in the world metal market, LME and Comex might explain clearer. Today, LME and Comex are the two world biggest metal exchanges. Each one covers a large part of the world. For example, LME covers EU, Middle East and some part of Asia and Africa while Comex covers all America, Australia and some where else. Even though it seems that the two metal exchanges are fiercely competing to each other, they actually are supporting each other. It is because there is difference in time-belt between New York and London, so working time of each market is different, which enable suppliers and manufacturers around the world to expand the opportunities on booking price by using both prices of the two markets. In particular, they might decide to use LME price during the working day of LME but once LME close, they turn to use Comex price until this market close. Hence, the quotation period 3 will be expanded and it appears more opportunities for dealers in choosing price. LME has been the world biggest metal exchange since it was established 130 years ago at the centre of London. It is the world’s premier non-ferrous metals market offering futures and options contracts for aluminium, copper, nickel, tin, zinc and lead plus two regional aluminium alloy contracts. The Exchange provides a transparent forum for all trading activities and as a result helps to ‘discover’ what the price of material will be 5 months and years ahead. This helps the physical industry to plan forward in a world subject to often severe and rapid price movements. In 2006 LME achieved volumes of 87 million lots, equivalent to $8,100 billion annually and between $35-45 billion on an average business day. Despite its location in London, the LME is a global market with an international membership and with more than 95% of its business coming from overseas 4 . In summary, metal market is a high standardized and liquid market which is directed by Exchanges such as LME and Comex. However, the LME has been keeping the position of a world leader thank to its long history and high prestige. The two most important roles of LME are providing prices due to the current supply/demand situation and building quality standard control. 1.2.2. Metal market in Vietnam As a part of world metal market, Vietnam market has operated on the same regulations of the world metal market. That means Vietnamese industries depend on LME or Comex prices to decide domestic prices. Nevertheless, supply and demand in Vietnam might not go with the trends in the LME or Comex because factors influenced on domestic prices are different to the world market’s. One of the remarkable characteristics of Vietnam market is the isolation among manufacturers in the same industry. Until now, there hasn’t had an official organization in Vietnam which gathers all manufacturers in the same industry and operates on the purpose of protecting domestic industry. That’s why market trends in Vietnam usually move adversely for both the manufacturers and the industry. It is caused by the price wars among manufacturers, which makes metal prices go down much while the world 6 [...]... vehicles and in marine applications 2.3.2 Market situation of Aluminum billet in Vietnam Because Aluminium Billet is the material used in extrusion industry, its market will be considered as production market and its customers are manufacturers as well The market has some differences to consuming market The basic difference is the purpose of purchase Customers in consuming market buy goods to satisfy their... in production market purchase materials for commercial aims Another difference is the competition level among customers to have goods In production market, manufacturers have to compete to each other toughly in purchasing needed materials in shortage time, which rarely happens in consuming market Shortage and speculation are also the top two influences on metal market Aluminium Billet’s market must... Recycling International’s Editorial, Consultant (North America) “High prices increase substitution risk”- 3 August, http://www.recyclinginternational.com/pdf_marketreports/MA_Nonferr ous_0606.pdf 4 Lisa Twaronite, Market Watch “China shrugs off G7, IMF pressure on Yuan”, Oct 22, 2007 5 Ralf Schmitz, German non-ferrous trade association VDM (Europe); Shi Lili, journalist and consultant, China; “Markets boosted... of consumer market For instance, Oristar won’t have to spend a lot of money on advertising by on public media but they do need to advertise on the internet especially through its own website Oristar’s website 9 has not provided enough information to satisfy viewers The design is not very professional and attractive to make a good impression on viewers In the future, Oristar should pay more attention... recommendations will be helpful to Oristar 25 CONCLUSION In conclusion, we have covered all chapters mentioned in the introduction including the basic knowledge of import and export activity and metal market in chapter I In Chapter II, we focus on Oristar’s current performance and its business activity on Aluminium Billet, which are basics for the development in the next chapter In this chapter, solutions... establishing an organization which is responsible for directing and orienting the market and preventing such continual price wars as it is being this time in Vietnam Besides, another reason is that in Vietnam there are hardly any giant in aluminium industry who may have a big influence on the whole market or control the market It is a fact that almost all big aluminium manufacturers in Vietnam have had similar... market Aluminium Billet’s market must follow the regulations of metal market as well Aluminium Billet market of South East Asia has suffered a big changes in the position of Billet regional giants due to such above reasons of metal market That is the case of PT.H.P Metal and Formosa that will be analyzed more specific later Recently, each year Vietnam has used up about 15,000 to 20, 000 MT Billet imported... equal impact to the market That’s why the competition in the market has become so tough.Some big aluminium manufacturers in Vietnam are Do Thanh, Dong Anh, Song Hong, Scancom, Quang Binh, Nam Hai, and Dien Bien There are 60 % of these companies which have ever made deals with Oristar6 on aluminium billet 7 CHAPTER II ORISTAR’S BUSINESS ACTIVITIES AND ITS ECONOMIC PERFORMANCE ON VIETNAM ALUMINIUM BILLET... Import data”; March 26 2007; http://www.recyclinginternational.com/pdf_marketreports/MA_Nonferr ous_0307.pdf 6 Ralf Schmitz, German Non-Ferrous Trade Association, VDM (Europe); * Kumar Radhakrishnan, General Manager, International Division of Simsmetal Ltd, Australia (Asia & Pacific Rim) http://www.recyclinginternational.com/pdf_marketreports/MA_Nonferr ous_0605.pdf7.http://www.lme.co.uk/ 28 ... recommendation on this problem is that Oristar should be more flexible in information management for a better business result 24 3.5 Marketing activity The final recommendation for Oristar is on marketing activities and customer service As agent and supplier of materials in Vietnam, Oristar’s customers almost are manufacturers Therefore, Oristar’s marketing strategies might have some differences to marketing . situation and building quality standard control. 1.2.2. Metal market in Vietnam As a part of world metal market, Vietnam market has operated on the same regulations of the world metal market. . Standards LC Letter of Credit LME London Metal Exchange MT Metric Ton SC Sale Contract iii CONTENTS iv INTRODUCTION As being one of the expert agents in Vietnam metal market, Oristar has achieved. market information. 1.2. Overview of metal market 1.2.1. World metal market Metal market has its own rules which are very different from others. One of the reasons is that metals are special